HSBC 2005 Annual Report Download - page 146

HSBC HOLDINGS PLC
Financial Review (continued)
144
HSBC Holdings’ maximum exposure to credit
risk at 31 December 2005, excluding collateral or
other credit enhancements, was as follows:
2005
Carrying
value
Off-balance
sheet exposure
Maximum
exposure
US$m US$m US$m
Derivatives ......................................................................................................... 968 – 968
Loans and advances to HSBC undertakings ....................................................... 14,092 3,663 17,755
Financial investments – debt securities of HSBC undertakings .......................... 3,256 – 3,256
Guarantees .......................................................................................................... – 36,877 36,877
18,316 40,540 58,856
No collateral or other credit enhancements were
held by HSBC Holdings in respect of its transactions
with subsidiary undertakings, other than cash
deposited in respect of interest rate contract margins.
HSBC Holdings’ financial assets are held with
subsidiaries of HSBC, primarily those domiciled in
Europe and North America.
Areas of special interest
Group advances to personal customers
The loan impairment charge in 2005 remained
dominated by the charge relating to the personal
sector, which represented 92 per cent of the Group
total after taking account of losses from HSBC’s
other credit related activities. Within this total, losses
on residential mortgages remained modest.
At 31 December 2005, HSBC’s lending to the
personal sector amounted to US$420 billion, or
56 per cent of total gross loans and advances,
compared with US$388 billion (57 per cent) at
31 December 2004. Acquisitions in 2005 accounted
for 1 per cent of the overall increase on the previous
year. The main characteristics of this portfolio and
the economic influences affecting it are outlined
below.
Secured residential mortgages, including the
Hong Kong GHOS, accounted for US$239 billion,
or 57 per cent of total lending to the personal sector,
compared with US$228 billion, or 59 per cent, at
31 December 2004. The US and the UK were the
main areas of growth in 2005, though increased
lending to European customers was masked by the
effect of the strengthening US dollar on currency
translation. In percentage terms, growth in the Rest
of Asia-Pacific was also strong, and mortgage
lending increased by over 30 per cent in each of the
Middle East, India, Taiwan, South Korea, mainland
China and Singapore.
Growth in the unsecured element of the
portfolio, consisting of credit and charge card
advances, personal loans, vehicle finance facilities
and other varieties of instalment finance, was more
subdued than in the prior year. Following a review of
the UK personal unsecured lending book,
US$1 billion of gross lending to personal customers
was written off, and related collectively assessed loss
allowances extinguished. This reflected those
amounts for which it was deemed there was no
realistic possibility of recovery, and was the main
cause of more subdued growth. At 31 December
2005, the combined portfolios totalled
US$182 billion, or 43 per cent, of total lending to the
personal sector, compared with US$160 billion, or
41 per cent, at 31 December 2004. The acquisition of
the credit card portfolios of Metris added
US$5 billion to unsecured lending in 2005.
Growth in these portfolios reflected resilient
consumer spending in most of the main economies in
which HSBC operates. In the UK, demand for
additional consumer credit moderated, and
marketing and competitive pricing initiatives were
the main drivers of growth. Again, growth in Europe
was masked by the strengthening US dollar.
Geographically, total lending to personal
customers was dominated by the diverse and mature
portfolios in North America (US$218 billion), the
UK (US$107 billion) and Hong Kong
(US$38 billion). Collectively, these books accounted
for 87 per cent of total lending to the personal sector
(31 December 2004: 87 per cent).
Account management within HSBC’s personal
lending portfolios is generally supported by
sophisticated statistical techniques, which are
enhanced by the availability of credit reference data
in key local markets. The utilisation of an
increasingly analytical approach to the management
of these portfolios remains an ongoing objective of
the Group.
In the US, excluding the acquisition of Metris,
growth was largely in the mortgage services and
branch-based consumer lending businesses.
Promotions in the dealer network, and strong growth
in the consumer direct loan programme, also